The arrows in Figures A-D represent possible movements of the exchange rate (eur

Question

The arrows in Figures A-D represent possible movements of the exchange rate (euros per U.S. dollar) and the quantity of U.S. dollars buyers are willing and able to buy. Use these figures to answer the following questions. Euros per Price Figure A Figure B (Euros per U.S. Dollar) U.S. Dollar) Di D1 50 50 75 (Millions of U.S. Dollars) (Millions of U.S. Dollars) Figure C Figure D Euros per u.S. Dollar) (Euros per U.S. Dollar) D1 D1 75 (Millions of U.S. Dollars) 75 (Millions of US. Dollars) A depreciation of the euro against the U.S. dollar is represented by Figure____anda depreciation of the U.S. dollar against the euro is represented by Figure_____. C A: C B: D D: B A: D

Explanation / Answer

When a currency depreciates, it's demand increases in the international market. A depreciation of the Euro against the US dollars means, more euros can be bought for 1 US dollar. So, there will be an upward movement along the demand curve. Quantity demand for US dollars will decrease as people demand more euros as euro has depreciated and less dollars because dollar has appreciated relative to euros.

On the other hand, Depreciation of US dollars means more dollars are demanded and therefore quantity demanded will increase. As the dollar has depreciated in value, therefore less euro can be purchased for one US dollar(downward movement along the demand curve).

Answer- option 2 : C,A

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.